Lansdowne Partners is planning to close its flagship hedge fund as it bids a hasty retreat from short selling and shifts its focus onto long-only bets and early stage businesses.
The Mayfair-based firm confirmed it will close the $2.8bn (£2.2bn) Lansdowne Developed Markets fund, run by Peter Davies and Jonathan Regis, in a letter to investors. Investors in the fund have been given the option to withdraw their money, park their cash in the long-only version of the Developed Markets fund or invest in the LDM Opportunities fund, a new fund that will invest in start-ups.
Explaining its decision, Lansdowne said it had become harder to make money from short bets against companies and that it had been finding better opportunities in long-only investments, including early stage companies.
“We believe that our exclusive focus going forward should be the listed long book and a more proactive approach to the early-stage investments, both private and public,” the firm said. “These opportunities are ones which we think have distinct attractions, time horizons and risk profiles and therefore warrant separate investment vehicles.”
Lansdowne Partners declined to comment. The firm has said it will continue shorting companies via some of its other funds.
Lansdowne bets turn sour during coronavirus rout
Willis Owen head of personal investing Adrian Lowcock said Lansdown’s admission it can make more money from long-only bets represents “a big shift in attitude and mindset” from the hedge fund mantra that savvy investors can use the information available to profit in rising and falling markets.
“Hedge fund managers have had to spend years defending their approach and usually have had conviction in it,” Lowcock said.
Lansdowne’s staple hedge fund rose to prominence for several savvy shorts, including a well-timed bet against Newcastle bank Northern Rock, which collapsed during the financial crisis. But recently it has suffered huge setbacks.
The Developed Markets fund lost 13% during the March sell-off, according to Bloomberg, its biggest monthly drop since it began trading nearly two decades ago. At the same time other short sellers like Crispin Odey and Paul Marshall and Ian Wace were making a killing from their bets against companies like Intu Properties, Fevertree, Easyjet and Intercontinental Hotels Group.
Lansdowne told investors the Developed Markets strategy had fallen 23.3% over the first half of the year.
Lowcock said growing interference from central banks and governments in financial markets has made it more challenging for managers to predict how markets will behave and perform.
“The challenge with such strategies has always been that if you get it wrong the losses can be significant, but every successful long/short manager has suffered this ignominy of a poor call and huge losses.”
Lansdowne and Woodford connection
Lansdowne is no stranger to early stage investments. In recent years it has built up stakes in smaller-listed businesses as well as unquoted companies that were once championed by Neil Woodford.
It is currently the third largest shareholder in IP Group, one of Woodford Equity Income’s top 10 holdings right before it suspended, and owns 4.9% of 4D Pharma, a former Woodford holding that was sold to Acacia Research.
Lasndowne is also the largest stakeholder in another Woodford favourite Synairgen, which saw its share price surge tenfold amid the coronavirus outbreak. It currently owns an 11.6% stake in the business.
